I Received a Huge Check and I’m Mad About It

Summary

Podcast Summary: The Ramsey Show Highlights – "I Received a Huge Check and I’m Mad About It"

Episode Information

• Title: I Received a Huge Check and I’m Mad About It
• Host/Author: Ramsey Network
• Release Date: December 30, 2024
• Duration: Approximately 8 minutes

---

Introduction and Caller’s Dilemma

In this episode of The Ramsey Show Highlights, a caller (B) reaches out with a financial predicament involving an inherited 401(k) plan. The host (A) listens attentively to understand the nuances of B's situation.

Key Points:

• B inherited a 401(k) from his father, who passed away in 2018.
• Initially, the account balance was $300,000.
• Five years later, B received a check for $245,000, leaving a $55,000 difference to be paid to the IRS.
• The 401(k) company did not offer the option to roll over the funds before issuing the check.

Notable Quote:

• B (00:08): “I never thought this was going to happen. So in 2018, my father passed away and he left me and my brother a 401k plan.”

---

Understanding the Issue

B explains the unexpected tax implications and the lack of communication from the 401(k) provider regarding the forced distribution of funds.

Key Points:

• B was unaware of the requirement to roll over the inherited 401(k) within five years.
• The 401(k) company had a five-year plan for death benefits, leading to the automatic issuance of the check.
• B was on the phone with the 401(k) company for an hour and a half trying to find a workaround, but was told none existed once the check was issued.

Notable Quotes:

• B (01:02): “They have a five year plan, I guess for the death benefit that if it's not rolled over to something else within five years, they must close the account and just issue a checkout.”
• A (02:03): “What caused you to wait the five years as opposed to rolling it over?”

---

Financial Implications and Misunderstandings

The conversation delves into the SECURE Act and its impact on inherited retirement accounts, highlighting a possible lack of awareness on B’s part regarding legislative changes.

Key Points:

• A mentions the SECURE Act passed under Biden, which requires the liquidation of inherited 401(k)s within ten years.
• B claims he was unaware of this regulation.
• A expresses frustration over the 401(k) company's lack of notification, emphasizing the severity given the substantial sum involved.

Notable Quotes:

• A (02:43): “Under the Secure act that Biden passed, you have 10 years to liquidate the 401k completely.”
• A (03:08): “This is a problem. It’s not technically unethical. It’s just so nasty that it ought to be unethical.”

---

Proposed Solutions and Expert Advice

A offers practical advice to B, suggesting professional assistance to navigate the tax implications and possibly overturn the forced distribution.

Key Points:

• A recommends visiting ramseysolutions.com to connect with a SmartVestor Pro.
• The goal is to negotiate with the 401(k) provider to potentially reverse the distribution and enable a rollover within the 60-day window to minimize tax liabilities.
• A explains the tax withholding mechanics, clarifying that the $55,000 withheld is not entirely taxable if managed correctly.

Notable Quotes:

• A (04:16): “Go to ramseysolutions.com and click on SmartVestor and find a SmartVestor Pro in your area that you like.”
• A (06:40): “Because you’re gonna roll the portion in your hand, which is 80% of it, into a traditional to keep you from getting taxed.”

---

Tax Clarifications and Next Steps

The host elaborates on the tax obligations associated with the distribution and the steps B should take to mitigate the financial impact.

Key Points:

• A clarifies that the $55,000 withheld by the IRS is a prepayment of taxes, not the total tax liability.
• If B rolls over the $245,000 into a Traditional IRA within 60 days, only the $55,000 is subject to taxation.
• B is advised to promptly consult with a SmartVestor Pro to explore the possibility of reversing the distribution or effectively managing the tax obligations.

Notable Quotes:

• A (07:32): “Because you’re gonna roll the portion in your hand, which is 80% of it, into a traditional to keep you from getting taxed.”
• A (07:51): “Folks, you can pull your money out of 401k. They have to withhold 20%, but you have to put 100% into an account within 60 days to avoid taxation.”

---

Conclusion and Takeaways

The episode concludes with a recap of the critical actions B should undertake and a reiteration of the resources available through Ramsey Network to assist listeners facing similar financial challenges.

Key Takeaways:

• Understanding the implications of inherited retirement accounts is crucial, especially with legislative changes like the SECURE Act.
• Prompt action is necessary to manage tax liabilities effectively when dealing with forced distributions.
• Professional financial advice, such as consulting a SmartVestor Pro, can provide tailored solutions to complex financial issues.

Notable Quote:

• A (07:18): “So the worst case scenario, if you follow through on what I just told you, is taxes on $55,000 because the government has 55,000 of your money.”

---

Final Thoughts

This episode underscores the importance of staying informed about financial regulations and proactively managing inherited assets. By leveraging expert advice and utilizing available resources, individuals can navigate unexpected financial challenges with greater confidence and minimal repercussions.

For more personalized assistance, listeners are encouraged to visit ramseysolutions.com and connect with a SmartVestor Pro in their area.

---

Additional Resources:

• Ramsey Network App: Available for download to access further financial advice and tools.
• SmartVestor Services: Professional guidance for managing investments and retirement accounts.

Transcript

[A]

Brought to you by the Ramsey Network app. Download today to go further with Ramsey.

[B]

So I have a bit of a problem. I never thought this was going to happen. So in 2018, my father passed away and he left me and my brother a 401k plan. Fast forward 5 years. I got a check in the mail this morning for about 245,000. The original account balance was about 300,000. And what's happening is they gave me the check and I have to pay the IRS that 55,000 difference from the 300,245. I called them and asked them if they could roll it over and they said once they issued the check, there's nothing that can be done.

[A]

Who told them to issue the check?

[B]

Not me, apparently. The company my father for. I didn't either. Didn't read.

[A]

I'm sorry, I didn't. I didn't hear you. You cut out. Apparently the company your father works for. What?

[B]

Yeah, they. They have a five year plan, I guess for the death benefit that if it's not rolled over to something else within five years, they must close the account and just issue a checkout. It's super confusing. The way they explained it to me. I was on the phone with them for an hour and a half this morning with my 401k company and they pretty much said once we issue the check, there's nothing that can be done. There was no workaround.

[A]

Yeah, there is.

[B]

They had until this. That's what I'm saying.

[A]

I'm sure you don't have an extra 55 grand laying around.

[B]

No. So the way it worked is my account balance was 300,000. It started like 215, and over the years I added up to 300. They issued me a check for 245. They already took the money out and sent it to the irs. And it should be the difference.

[A]

Yeah. They have to withhold 20%. That's the rule. If you, if you take a. But this is an involuntary withdrawal without. No, without any contact to you or anything, which is completely, at a minimum, unprofessional. What caused you to wait.

[B]

What caused you to wait the five years as opposed to rolling it over? Because the 401k plan my father was invested in had really good options like I built.

[A]

All of those same options exist in the open market.

[B]

Yeah. And I. I have my own personal investment accounts and I do it with that as well. The, you know. You know, don't rock the boat if the boat shouldn't be rocked. So the way I figured is the 401k plan was perfectly fine. I kept it in there just because the investment options were fine. It was just. It's a retirement account. I was treating it like a retirement account. I wasn't going to touch it till I was 65. I'm 30 now. Yeah.

[A]

What do you make?

[B]

I make. I'm a truck driver, so I make about 110,000 a year. And I also own a small business that I make about the same.

[A]

Okay. Under the Secure act that Biden passed, you have 10 years to liquidate the 401k completely. You should have been liquidating it at 1 10th a year from the time the SECURE act passed two years ago. And you've not been doing that.

[B]

So I didn't know about that.

[A]

I know. So I'm trying to figure out how that plays into this and how hardcore. All right, let's pretend that we figure out a way to lean on them and they cancel the check and put the money back in the 401k so that you can roll it over within 30 days, which is what they should do if they're are people of integrity. This is a problem. It's not technically unethical. It's just so nasty that it ought to be unethical.

[B]

What they cost. It's a lot of money.

[A]

It's going to cost you. It's going to cost you, you know, 20, 30,000 bucks. And that you don't have two years.

[B]

It cost me two whole years of. Of gains because of this. I never thought I would be upset to get a huge check in the mail, but I did. And, well, I'm upset because I should have had it rolled over.

[A]

It should have been huger.

[B]

Yeah.

[A]

All right, so here's what. Here's. Here's what I'm going to suggest you do. And I don't think it'll work, but it's the only thing I can think of. All right.

[B]

Okay.

[A]

Go to ramseysolutions.com and click on SmartVestor and find a SmartVestor Pro in your area that you like. After talking to them on the phone, they may be able to call on your behalf and talk them into undoing this and immediately rolling it, and they'll help you with the rollover.

[B]

Okay.

[A]

They may be able to cite something that. A regulation or something that I'm not aware of, because this is. When you started talking. I thought you were going to tell me this was a tiny little 401k, like a $10,000, and they were just cleaning out all the Little ones. Sometimes they do when a company sells or in the event of an inherited 401k like you've got. But this is huge. This is a lot of money. And so this is. And with no notification at all, this is particularly nasty. And so if they had simply notified you, you could have quickly rolled it over and avoided this. Right.

[B]

And they said they notified me, but I, I.

[A]

Wait a minute. You're a truck driver. You're a truck. You didn't. They did notify you.

[B]

My account. They said they did, but I never had enough again. So you've never seen evidence of them?

[A]

Yeah. Ask them to prove that they. Ask them to prove that they did.

[B]

Okay.

[A]

Okay. So, I mean, I don't, I don't think you've got a basis for suing them, but I'd be tempted to. I really would. I mean, because you're talking about 25 or $30,000 cost here. That is unnecessary.

[B]

55,000. They took out. They. They.

[A]

The taxes on 55,000. The 55,000 is going to be taxed, not penalized.

[B]

No, they. When I got my experiment, like the summary of what my original account balance was, 300,000, they sent me a check for 245.

[A]

I understand they took 55,000. They sent it to the federal government as tax withholding. And it's not all taxable, so they cause the entire. Because you're going to roll the rest of this. If you take the check in your hand and you roll it to a 401k, the only harm that's going to come to you is the taxes on the 55,000, which is going to be 15 grand or 20 grand.

[B]

Oh, so I'm going to have to pay another 15 grand.

[A]

Honey, you haven't paid anything yet. Okay. They withheld your money, 55,000, and sent it to the federal government. Then what you do is you file a tax return of what is actually due. And what will be actually due is not 55,000. It'll only be the taxes on 55,000 if you take the check in your hand and put it into an IRA traditional within 60 days of right now. So you need to get on the phone with a smartvestor pro right now because at least we need to do that.

[B]

Okay, I will.

[A]

So the worst case scenario, if you follow through on what I just told you, is taxes on $55,000 because the government has 55,000 of your money. As if you're gonna get taxed on the whole thing. And you're not.

[B]

Okay.

[A]

Because you're gonna roll the portion in your hand, which is 80% of it, into a traditional to keep you from getting taxed. You got 60 days to do that from the time withdrawal. So, folks, you can pull your money out of 401k. They have to withhold 20%, but you have to put 100% into an account within 60 days to avoid taxation.

[B]

That's the problem because they can't do.

[A]

That because they got 55 of his money over at the IRS now. And so if you just take the, take the 55, then you're going to pay some taxes, but not 55. So there we go. Brought to you by the Ramsey Network app Download today to go further with Ramsey.